What You Need to Know if You Get Laid Off

Author: Keith Huggett

When you get laid off from your job, considering the tax implications involved is the last thing on your mind. Being laid off is stressful enough on its own, but finding out that you owe taxes can double the amount of stress you are feeling.  Here are some tips to help you through as you manage your time between jobs.

Paying Taxes on Unemployment - According to the IRS all unemployment benefits are taxable. By opting for the voluntary income tax withholding of 10% can help you be certain that your tax liability is covered.

Your most pressing issue following a layoff is making sure you have enough funds to pay your necessary expenses. Once you know where you stand financially, you can start planning your taxes for retirement and other important phases of your life.

Using your IRA Account - If you find yourself coming up short of funds you may consider using your Roth IRA account as a backup.  This can cause some issues with your taxes in the future. In most cases, you'll have to pay a 10 percent penalty on any retirement distribution  you take before the age of 59 1/2. If your retirement contributions were tax-deferred, which means that they were not taxed at the time of the contribution, you may also have to pay backup tax withholding of 20 percent.

Starting a New Business - If you are considering becoming your own boss, there are tax implications there as well.  While you are able to write off your startup business expenses, you are now required to pay self employment tax on your net earnings. By putting some money away during the year or by making estimated tax payments each quarter you can stay ahead of your self employment taxes.

Managing your budget following a layoff can be very stressful. Start organizing your tax information early and always seek out professional tax assistance if you need guidance. With the proper planning, you can get through your layoff without adding to your tax burden.